world growth

world growth

Sunday, July 31, 2011

Chinese yuan predicted to rise 4 percent over coming year

Yuan will rise steadily in this decade.

- The Chinese yuan will rise 4 percent against the dollar in the coming 12 months, making it the strongest performer among the BRIC country currencies, according to the latest Reuters poll.

As the Chinese economy expands with rising foreign exchange reserves, the yuan, also known as the renminbi, is set to extend an uninterrupted rise since it was de-pegged from the dollar just over a year ago.

A poll of 36 strategists and analysts, taken mostly before the People's Bank of China (PBOC) raised interest rates for the third time this year on Wednesday, showed the yuan trading at 6.40 in three months, 6.30 in six and 6.20 in 12 months.

That compares with 6.45, 6.38, and 6.24 in the previous quarterly BRIC FX poll.

BRIC countries have emerged as important players in the global economy, providing a ballast when developed economies plunged in the wake of the global financial crisis.

But that prominence has attracted a flood of investment from abroad in recent years, making national currencies expensive and threatening export markets.

"The (Chinese) currency is on a clear medium-term appreciation trend," said Robert Minikin, a senior foreign exchange strategist at Standard Chartered in Hong Kong.

He added that China may widen the trading band between the yuan and the dollar in the onshore market soon, in an effort to make the exchange rate more flexible and market-based.

But China, the world's largest exporter, is unlikely to conduct another "one-off" revaluation or allow sharp appreciation in the yuan.

Lu Zhengwei, chief economist for Industrial Bank in Shanghai, said using a rise in the yuan to fight imported inflation could backfire as it might encourage speculative capital inflows and push up prices further.

The PBOC raised the benchmark lending and deposit rates by 25 basis points each on Wednesday in an effort to tame rampant inflation despite clear signs growth is easing.

China's central bank is set to raise rates once more this year, according to a snap Reuters poll on Thursday.


The Brazilian real has been the hottest currency of the four in recent months, having jumped more than 6 percent since the beginning of the year to reach a 12-year high of1.552 per dollar on July 4.

The Reuters poll found the real was expected to remain broadly unchanged at 1.57 by the end of July, then slip to 1. 60 in six months. In 12 months it will fall to 1.63, nearly 4 percent weaker than current levels.

However, that is a stronger outlook compared with the April BRIC FX poll. A $600 billion U.S. Treasury bond purchase program, known as QE2,has flooded world markets with capital and caused the dollar to weaken. The program ended on June 30.

Some of that money has been invested in Brazil, where the 12.25 percent benchmark rate and a growing economy offer much better returns than near zero interest rates in the United States and some other developed economies. Estimates for the real are based on how quickly investors and economists expect the liquidity injected into the financial system from QE2 to be drained and how fast U.S. interest rates will rise.

The latest consensus shows U.S. rates won't rise until well into next year but not everyone is convinced.

"I think we can start seeing ... a pick-up in U.S. rates in three to six months," said Andre Ferreira, a partner at Futura Corretora, a Sao Paulo currency brokerage which expects the real to weaken to 1.65 by the end of the year.

Those who disagree on the value of the real, agree on where responsibility for changes lie. "The market is totally focused on U.S. liquidity and interest rates," said Diego Donadio, currency and interest-rate strategist at the Sao Paulo unit of BNP Paribas.

"We don't expect the U.S. to raise rates and reduce liquidity until sometime in 2012 and until that happens there is little that can happen to cause the real to seriously weaken." Donadio expects the real to strengthen marginally to 1.55 in 12 months. Few fear government threats to take measures to weaken the currency. President Dilma Rousseff faces rising political pressure to prevent the real's gains from undermining the competitiveness of Brazilian manufactured goods in export markets.

The strong real has flooded the country with imports and slowed export growth for most products except oil, iron ore , soybeans and other commodities and low-value goods.

A government source told Reuters on Wednesday that Brazil is considering new measures to weaken the real. [ID:nN1E7650T 5] But previous efforts in April to slow the flow of speculative capital to Brazil were shrugged off and the real was driven to new highs.

Foreign bets the real will gain further have also risen to new records, spurred in part by an increase in investment from Japan, where rates are also low and growth sluggish.

The poll found the partially convertible rupee would rise by around 1.0 percent against the dollar in the coming year, helped by strong foreign fund inflows into the domestic share market.

The Indian rupee is seen trading at 44.50 against the dollar in one month, 45 in three and 44 in 12 months. These medians are almost unchanged from a poll taken three months ago.

The dollar is also likely to be under pressure in coming months which is seen helping the rupee, traders said. On Thursday, the rupee was trading around 44.40 to the dollar.

"We expect the current slowdown in the global economy to be a temporary soft patch," said Sonal Varma, an economist with Nomura in Mumbai.

"Strong goods exports, rising software exports, strong remittances and rising foreign direct investment and external commercial borrowing inflows should all help the rupee gain over the next 12 months."

The Russian rouble is expected to appreciate slightly against the dollar in the near term before returning to present levels of around 28.2 this time next year.

Against the euro, the rouble is set to rise by more than 2 percent in the next 12 months to 39.22.

Russia's central bank bought $3.23 billion and 0.54 billion euros ($772.4 million) in June in its forex intervention s, aimed at curbing volatility, central bank data showed on Thursday.

Saturday, July 16, 2011

Iran and China sign $4 billion in deals

Hard to believe that China and Iran will reach $40 billion in trade in 2011.

TEHERAN — Iran and China on Saturday signed a series of agreements worth $4 billion (€2.8 billion) for infrastructure projects as part of a broader bid to boost trade volume between the two nations, Iranian state media reported.

As part of a $500 million (€354 million) deal, China agreed to provide Iran with 60 energy recovery incinerators, which are to be installed within a year in major cities and in Iran’s northern tourism hub along the Caspian sea.

The bilateral agreements span cooperation in water, mining, energy and industrial sectors. China also pledged to boosts its imports of Iranian mineral products, state TV reported.

“China is now the leading economic partner of Iran and there are plans for increasing last year’s trade volume of $30 billion to $100 billion in the future,” Iranian vice-president Mohammad Javad Mohammadi-Zadeh told state television.

The agreements were signed during a visit by He Guoqiang, a senior executive of the Chinese Communist Party, who heads a delegation visiting Iran. He was received by Iranian President Mahmoud Ahmadinejad.

“Bilateral trade will reach $40 billion (€28 billion) this year,” the Chinese ambassador to Teheran told IRNA recently.

China and Iran have become major economic partners in recent years, partly thanks to the withdrawal of Western companies in line with sanctions against the Islamic republic over its contentious nuclear drive.
Currency changes

Meanwhile, Iran’s central bank is asking citizens their opinions on new names for the country’s currency. Visitors to the bank’s website can choose from several names, including rial — the current name — toman, parsi and derik.

In the online survey, the bank also asks respondents how many zeros should be removed from the currency. The government has proposed lopping off four zeros. The biggest Iranian banknote is 100,000 rials, which is equivalent to around $9.

The poll results will be taken into consideration when the government draws up a draft on changes to the currency. The proposal will be submitted to parliament. Iran’s government has approved removing zeros from the currency, apparently as a result of inflation, which is officially about 14 per cent.§ion=business

Tuesday, July 5, 2011

China revises income tax threshold to 3500 yuan

China's top legislature on Thursday adopted an amendment to the country's individual income tax law. The amendment raises the monthly tax exemption threshold from 2,000 yuan ($307.7) to 3,500 yuan ($538.5).

The adjusted threshold is 500 yuan greater than the amount originally proposed in a previous draft of the amendment, which was submitted to the National People's Congress (NPC) Standing Committee on Monday for its second reading.

The new exemption threshold was agreed upon after the legislature held two meetings on Tuesday and Wednesday to listen to its members' opinions. It was during these meetings that the NPC's Law Committee proposed raising the threshold to 3,500 yuan.

The amendment was "necessary and timely" and will reduce tax burdens for people with low incomes, as well as help to adjust the distribution of income, according to the committee's proposal.

The previous law stated that individuals who earn less than 2,000 yuan ($307.7) per month are not required to pay income taxes. The draft amendment, submitted for its first reading on April 20, proposed raising the threshold to 3,000 yuan per month.

Many of the nation's citizens previously voiced their dissatisfaction with the 3,000-yuan threshold, appealing to lawmakers to reconsider the amendment.

Before the NPC Standing Committee started its second reading on Monday, the legislature publicized suggestions and opinions solicited from online taxpayers, hoping to acquire useful ideas for lawmakers to consider in their reading of the draft amendment.

Of the 82,707 citizens who commented on the draft amendment, about 83 percent suggested raising the threshold to 3,500 yuan, while 62 percent favored raising it even higher.